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how does small denomatons coins given by the gobernment affect liquidity
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- Under what circumstances does a liquidity trap arise and why does it lead to a failure in the above mechanisms?What is meant by Liquidity Trap? Which policy is more effective in liquidity trap and why? Discuss its implications. Kindly answer this question as soon asAssume a closed economy described by an IS-LM model. Explain what is meant by a liquidity trap, how such a condition can arise and what policies can be implemented to get out of it.
- Explain in words what you understand by the liquidity trap.Consider a consumption function of C = 0.75 (Y – T). a) If government spending increases by $300 and there is a tax hike of $500 to fund this increase, according to the IS-LM model will the IS curve shift up or down and by how much?b) Considering your shift in the IS curve from part a, how should the Federal Reserve adjust the money supply if they want to keep interest rates constant?Define the Keynesian Theory of Liquidity Preference.
- Why does the Keynesian view of the demand for moneysuggest that velocity is unpredictable?The multiplier is an indication of the capacity of money injected in the economy to a. increase investment b. increase welfare c. increase consumption d. increase interest rate e. increase GDPHow does restrictive monetary policy affect the level of investment and consumption? Explain your answer by using the IS/LM model
- Compare Keynes Liquidity Preference Theory with the classical quantity theory of money. Explain measurement of money and money creation in Pakistan.Explain why we model the demand for real money balance as a function of nationalincome and the nominal interest rate.OMOs (related to the “money transmission mechanism” idea) can be diagrammatically tied in to the AS and AD model, along with bond mkt, etc. Show both expansionary and contractionary mechanism with AS and AD and related models. Assumed closed economy.